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Virtual currency
Definitions General Virtual currency is Virtual currency is a "digital representation[] of value that are not government-issued."Virtual Currencies: Emerging Regulatory, Law Enforcement, and Consumer Protection Challenges, at Highlights. Virtual worlds Virtual currency refers to the unit of exchange used in virtual worlds. Originally provided to users of virtual worlds by game creators for use in-game, a robust market has developed for these currencies offline. Overview (General) Virtual currencies have come in many forms, beginning as currencies within online computer gaming environments and social networks, and developing into means of payment accepted "offline" or in "real life." It is now increasingly possible to use virtual currencies as a means to pay for goods and services with retailers, restaurants and entertainment venues. These transactions often do not incur any fees or charges, and do not involve a bank. While virtual currencies can function as a unit of account, store of value, and medium of exchange, they are not widely used or accepted. Some virtual currencies can only be used within virtual economies (for example, within online role-playing games) and may not be readily exchanged for government-issued currencies such as U.S. dollars, euro, or yen. Other virtual currencies may be used to purchase goods and services in the real economy and can be converted into government-issued currencies through virtual currency exchanges. They offer potential benefits over traditional currencies, including lower transaction costs and faster funds transfers. Because some virtual currency transactions provide greater anonymity than transactions using traditional payment systems, law enforcement and financial regulators have raised concerns about the use of virtual currencies for illegal activities. Additionally, recent cases involving the loss of funds from virtual currency exchanges have highlighted potential consumer protection issues. Virtual currency does not have legal tender status in any jurisdiction. Recently, the virtual currency "Bitcoin" has set the scene for a new generation of decentralised, peer-to-peer virtual currencies — often also referred to as crypto-currencies. Virtual currencies can be bought at an exchange platform using conventional currency. They are then transferred to a personalized account known as a "digital wallet." Using this wallet, consumers can send virtual currencies online to anyone else willing to accept them, or convert them back into a conventional fiat currency (such as the Euro, Pound or Dollar). Overview (Virtual worlds) Linden Lab, the creator of Second Life, has been credited with creating the first currency system in a virtual world.See Yesha Sivan, "3D3C Real Virtual Worlds Defined: The Immense Potential of Merging 3D, Community, Creation, and Commerce," J. of Virtual Worlds Res., Vol. 1, No. 1, at 8 (July 2008) (full-text). The basis for Second Life's virtual economy is the "Linden Dollar," or "L$." Users may buy and sell Linden Dollars on the "Lindex" or "Linden Exchange," which Linden Lab operates. As of September 2009, the exchange rate on the Lindex is approximately 270 Linden Dollars for each U.S. Dollar. Users may sell Linden Dollars on the Lindex and cash out the sale proceeds in U.S. Dollars into their PayPal accounts. Linden Lab monitors and manages the Lindex to keep it stable, and has implemented anti-fraud and anti-money laundering measures. Given this framework for conducting business, "Second Life has been a starting ground for many real-life companies to explore the opportunities for virtual business and marketing."Lyle R. Wetsch, "The 'New' Virtual Consumer," J. of Virtual Worlds Res., Vol. 1, No. 2, at 2 (Nov. 2008). Many users have even used Second Life to earn money by creating, advertising, and selling virtual goods such as clothing and accessories as well as by operating entertainment venues and offering scripting and creative services to major businesses and universities. This model has been replicated in many other virtual worlds to varying degrees.Other online virtual worlds that have in-world monetary systems include: Gaia, in which users may use "Gaia Cash" purchased with U.S. dollars online and at certain brick-and-mortar stores, or earned in-world by doing surveys and completing sponsored deals; Neopets, in which users may buy items for their virtual pets with "Neopoints," earned through playing games, investing in the game’s stock market, and winning contests; and There.com, in which users engage in monetary transactions using Therebucks purchased directly from There.com, from other members, or from third-party online banks.” Risks Virtual currencies aren't regular money. To begin with, virtual currencies are not issued or backed by the United States or any other government or central bank. No one is required to accept them as payment or to exchange them for traditional currencies. To work, they depend on the processing power of vast networks of unidentified, private computers around the world, which maintain and update a public ledger called the "blockchain." (Think of it as a public spreadsheet.) Further, virtual currencies are not kept in banks or credit unions. In order to use virtual currencies, you need to store them in a "digital wallet," which are identified by the owner's "public keys." To access the virtual currency in a digital wallet, the owner uses its "private keys." (Private keys are random sequences of 64 letters and numbers that should be kept secret; public keys are corresponding letter/number sequences that everyone can see on the blockchain.) If the owner want to send someone its virtual currency, for example as payment, the owner uses the private keys to unlock the digital wallet. In many ways, the private keys are the virtual currency so keeping the private keys secret is critical to owning and using virtual currency. An owner can store and protect its private keys itself or entrust them to a company called a wallet provider to protect them for the owner. References Sources * "Overview (General)" section: European Banking Authority, "EBA warns consumers on virtual currencies" (Dec. 13, 2013) (full-text). * "Overview (General)" section: Virtual Currencies: Emerging Regulatory, Law Enforcement, and Consumer Protection Challenges. * "Risks" section: Risks to Consumers Posed by Virtual Currencies, at 1-2. See also * Application of FinCEN's Regulations to Persons Administering, Exchanging, or Using Virtual Currencies * Application of FinCEN's Regulations to Virtual Currency Mining Operations * Application of FinCEN's Regulations to Virtual Currency Software Development and Certain Investment Activity * Bitcoin * Centralized virtual currency * Closed-flow virtual currency * Convertible virtual currency * Cryptocurrency * Decentralized virtual currency * E-Gold * Hybrid virtual currency * Non-convertible virtual currency * Open-flow virtual currency * Virtual Currency Business Activity * Virtual Currency Schemes * Virtual Currency Schemes: A Further Analysis * Virtual Currencies * Virtual environment * Virtual goods * Virtual Currencies: Emerging Regulatory, Law Enforcement, and Consumer Protection Challenges * Virtual property * Warning to Consumers on Virtual Currencies * World of Warcraft Gold Category:Videogame Category:Software Category:Financial Category:Definition Category:Virtual currency Category:Blockchain Category:Bitcoin